Introduction: Recently many Audit observations issued by the Tax Authorities to various Companies which are involved in SEZ supplies covers a major observation namely “Non-submission of SEZ Endorsements for claiming benefits of Zero-Rated Supplies as per Section 16 of IGST Act”. The question which triggers even after submission of Invoices issued to the SEZ Units with the applicable declarations, copy of SEZ Unit LOA’s, proof of payments such as Bank statement evidencing the payments received from respective SEZ Units, there exist a requirement namely “SEZ Endorsement”. Let us understand the importance of this SEZ Endorsement and Authorised Operations in a macro level in the ensuing Paras.
A major amendment in Section 16 of IGST Act wherein the term “Authorised Operations” has been included (Section 123(a) of Finance Act, 2021 read with Notification No. 27/2023 -Central Tax dated July 31, 2023)
Section 16(1)(b) of IGST Act – Supply of goods or services or both for Authorised Operations to a Special Economic Zone developer or a Special Economic Zone Unit.
Effective Date for aforesaid amendment was October 1, 2023
Before proceeding to SEZ Endorsement, let us understand what is “Authorised Operations”. In order to determine as to what qualifies as ‘authorized operations’, reference has to be made to Section 2(c) of SEZ Act, 2005 – “Operations which may be authorized under Section 4(2) and Section 15(9)”.
Section 4(2) of SEZ Act, 2005 – Establishment of SEZ and Approval and Authorisation to operate it to, developer – (2) After the appointed day, the Board may authorise the developer to undertake in a SEZ, such operations which the Central Government may authorise.
Section 15(9) – Setting up of Unit – “The Development Commissioner(“DC”) may, after approval of the proposal referred to in sub-section (3), grant a LOA to the concerned person to set up a Unit and undertake such operations which the DC may authorise and every operation so authorised shall be mentioned in the LOA.
Apart from the above, we have a default / Uniform list of services. The said list provides all services approved for use by the developer/ Units of SEZ to carry out authorised operations.
Now let us understand the requirement on SEZ Endorsement:
The primary objective of obtaining endorsement is that tax benefit is not misused and that the goods and services are used by the SEZ unit for the purpose of its authorized operations, which means that by way of the endorsement, the SEZ Officers are certifying that the goods and services are received by the SEZ unit and the same has been used for the purpose of Authorized Operations alone.
A documentary proof for proving that such goods / services are received for the purpose of authorized operations is endorsement issued by the respective SEZ Authorised Officer / SEZ Specified Officer (SEZ AO / SEZ SO). In absence of such documentary evidence, it is very difficult to conclude on the usage of goods / services utilized are towards authorized operations.
Self declaration from SEZ Unit alone will not suffice to prove the eligibility. An independent authority has to confirm the usage of goods / services and hence this endorsement has been kept in place as a compliance requirement for SEZ Units (Rule 30(4) of SEZ Rules). The said requirement is specifically provided under refund provisions where when refund application has been filed by a unit towards SEZ Supplies where payment of IGST paid / Un utilized ITC (Second proviso to Rule 89 of CGST Rules provides for specific requirement). However, with the effect of amendment in the Section 16 of the IGST, the said endorsement would play a prominent role in providing confirmation that the all the goods / services are used by the SEZ Units are towards Authorized Operations alone.
Conclusion: SEZ Endorsement act as a documentary proof towards goods / services used for the purpose of Authorised Operations. Also, it can be viewed that such requirement to obtain endorsements was already in place in SEZ Act which was in existence prior to introduction of GST.
Hence, it is suggested to obtain endorsements towards the SEZ supplies even though transactions are prior to October 01, 2023.
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– CA Sai Raghavendra Sumanth T
Writer can be reached at email: tsr.sumanth@gmail.com
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